ACC 203 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

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Module 7
Accounting for Property, Plant and Equipment, Intangibles and Impairment of
Assets
Week 12-13
Assessments
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IAS 38 Intangible Assets

An intangible asset is an identifiable, non-monetary item without physical substance,
which is within the control of the entity and is capable of generating future economic
benefits for the entity.
An active market is a market in which the items traded are homogenous, willing buyers
and sellers can be found at any time and prices are available to the public.
An asset is identifiable if it is either separable, i.e. is capable of being separated or
divided from the entity; or arises from contractual or other legal rights, regardless of
whether those rights are transferable or separable from the entity or from other rights and
obligations.
Residual value is the estimated amount that an asset's owner would earn by disposing of
the asset, less any disposal cost. With residual value, it's assumed that the asset has
reached the end of its useful life. Its useful life is either the period over which an asset is
expected to be available for use by an entity; or the number of production or similar units
expected to be obtained from the asset by an entity.
Research is the original planned investigation undertaken with the prospect of gaining
new scientific or technical knowledge and understanding. Development is the application
of research findings or other knowledge to a plan or design for the production of new or
substantially improved materials, devices, products, processes or services before the start
of commercial production.

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Amortisation refers to the systematic allocation of the depreciable amount of an
intangible asset over its useful life.
An intangible asset shall be recognised if, and only if:
 It is probable that future economic benefits that are attributable to the asset will
flow to the entity; and the cost of the asset can be measured reliably.
An intangible asset shall be measured initially at cost.

Separate acquisition
The cost of a separately acquired intangible asset can usually be measured reliably. This
is when the purchase consideration is in the form of cash or other monetary assets.
The cost of a separately acquired intangible asset comprises:
 Its purchase price, including import duties and non-refundable purchase taxes,
after deducting trade discounts and rebates; and any directly attributable cost of
preparing the asset for its intended use.
Exchange of assets
Intangible assets may be acquired in exchange for a non-monetary asset or asset. The cost
is measured at fair value. If the acquired asset is not measured at fair value, its cost is
measured at the carrying amount of the asset given up. An intangible asset acquired in a
business combination might be separable, but only together with a related contract,
identifiable asset or liability. In such cases, the acquirer recognises the intangible asset
separately from goodwill, but together with the related item.
Government grant
Initially recognition at either fair value or normal value plus direct expenses to prepare
for use.
Internally generated goodwill shall not be recognised as an asset.
Internally generated intangible assets needed to meet the criteria for recognition and an
entity classifies the generation of assets into research phase and development phase.
Measurement after recognition shall choose either cost model or revaluation model and
if the intangible asset is accounted one of the two model, all other asset also be use the
same model, unless there’s no active market for those assets.
Cost model

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After initial recognition, an intangible asset shall be carried at its cost less any
accumulated amortisation and any accumulated impairment losses.
Revaluation model
After initial recognition, an intangible asset shall be carried at a revalued amount, being
its fair value at the date of the revaluation less any subsequent accumulated amortisation
and any subsequent accumulated impairment losses. For the purpose of revaluations
under this Standard, fair value shall be measured by reference to an active market. If an
intangible asset in a class of revalued intangible assets cannot be revalued because there
is no active market for this asset, the asset shall be carried at its cost less any accumulated
amortisation and impairment losses. If the fair value of a revalued intangible asset can no
longer be measured by reference to an active market, the carrying amount of the asset
shall be its revalued amount at the date of the last revaluation by reference to the active
market less any subsequent accumulated amortisation and any subsequent accumulated
impairment losses. The fact that an active market no longer exists for a revalued
intangible asset may indicate that the asset may be impaired and that it needs to be tested
in accordance with IAS 36 Impairment of Assets.
Useful Life
 If finite, the length of, or number of production or similar units constituting that
useful life.
 Indefinite useful life when, based on an analysis of all of the relevant factors,
there is no foreseeable limit to the period over which the asset is expected to
generate net cash inflows for the entity.
The useful life of an intangible asset that arises from contractual or other legal rights shall
not exceed the period of the contractual or other legal rights, but may be shorter
depending on the period over which the entity expects to use the asset. If the contractual
or other legal rights are conveyed for a limited term that can be renewed, the useful life of
the intangible asset shall include the renewal period(s) only if there is evidence to support
renewal by the entity without significant cost.
Retirement and disposals
An intangible asset shall be de-recognised on disposal; or when no future economic
benefits are expected from its use or disposal. The gain or loss arising from the de-

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recognition of an intangible asset shall be determined as the difference between the net
disposal proceeds, if any, and the carrying amount of the asset. It shall be recognised in
profit or loss when the asset is de-recognised (unless IAS 17 Leases requires otherwise on
a sale and leaseback). Gains shall not be classified as revenue.
Presentation and disclosure
An entity shall disclose for each class of intangible assets, distinguishing between
internally generated intangible assets and other intangible assets. The Financial statement
shall disclose the intangible asset, the financial statement itself, and also if intangible
assets are accounted for at revalued amounts. An entity is encouraged, but not required,
to disclose the description of any fully amortized intangible asset that is still in use; and
brief description of significant intangible assets controlled by the entity but not
recognized as assets because they did not meet the recognition criteria in this Standard or
because they were acquired or generated before the version of IAS 38 Intangible Assets
issued in 1998 was effective. An entity shall disclose the aggregate amount of research
and development expenditure recognized as an expense during the period.

IAS 36 Impairment of Assets

Defined terms
An impairment loss is the amount by which the carrying amount of an asset or a cash
generating unit exceeds its recoverable amount.
A cash generating unit is the smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows from other assets or group of
assets.
The carrying amount is the amount at which an asset is recognised after deducting any
accumulated depreciation (amortisation) and accumulated impairment losses thereon.
The recoverable amount is the higher of an asset’s or cash generating unit fair value less
costs of disposal and its value in use.
An assets value in use is the present value of the future cash flows expected to be derived
from an asset or cash generating unit.

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Fair value is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date.
Useful life is the period of time over which an asset is expected to be used by an entity;
or the number of production or similar units expected to be obtained from the asset by an
entity.
Effective date of the entity shall apply to goodwill and intangible assets acquired in
business combinations for which the agreement date is on or after 31 March 2004; and to
all other assets prospectively from the beginning of the first annual period beginning on
or after 31 March 2004.
Identifying when as asset may be impaired
If an entity assessed that there’s an indication that an asset was impaired, the entity shall
estimate the recoverable amount of the asset.
Irrespective of whether there is any indication of impairment, an entity shall also test an
intangible asset with an indefinite useful life or an intangible asset not yet available for
use for impairment annually by comparing its carrying amount with its recoverable
amount and test goodwill acquired in a business combination for impairment annually.
As a minimum, the following indicators shall be considered the internal sources; external
sources; and the dividends from subsidiary, joint venture or associate.
Measuring recoverable amount
As stated, the recoverable amount is the higher of an asset’s or cash-generating unit’s fair
value less costs of disposals and its value in use. It is not always necessary to determine
both an asset’s fair value less costs of disposal and its value in use. If either of these
amounts exceeds the asset’s carrying amount, the asset is not impaired and it is not
necessary to estimate the other amount.
The recoverable amount is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from other assets or groups of
assets. If this is the case, recoverable amount is determined for the cash-generating unit to
which the asset belongs unless either
 The asset’s fair value less costs of disposal is higher than its carrying amount; or
 The asset’s value in use can be estimated to be close to its fair value less costs of
disposal and fair value less costs of disposal can be measured.

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Value in use
Estimate the future cash inflows and outflows to be derived from continuing use of the
asset and from its ultimate disposal and apply the appropriate discount rate to those future
cash flows.
Composition of Estimates of future cash flows shall include projections of cash inflows
from the continuing use of the asset and cash outflows that are necessarily incurred to
generate the cash inflows from continuing use of the asset (including cash outflows to
prepare the asset for use) and can be directly attributed, or allocated on a reasonable and
consistent basis, to the asset; and net cash flows, if any, to be received (or paid) for the
disposal of the asset at the end of its useful life.
Basis for estimates of future cash flows in measuring value in use an entity shall the base
cash flow projections on reasonable and supportable assumptions that represent
management’s best estimate of the range of economic conditions; base cash flow
projections on the most recent financial budgets/forecasts approved by management; and
estimate cash flow projections beyond the period covered by the most recent
budgets/forecasts by extrapolating the projections based on the budgets/forecasts using a
steady or declining growth rate for subsequent years.
Recognizing an impairment loss
If, and only if, the recoverable amount of an asset is less than its carrying amount, the
carrying amount of the asset shall be reduced to its recoverable amount. That reduction is
an impairment loss. An impairment loss shall be recognised immediately in profit or loss,
unless the asset is carried at revalued amount in accordance with another Standard.
Any impairment loss of a revalued asset shall be treated as a revaluation decrease in
accordance with that other Standard. When the amount estimated for an impairment loss
is greater than the carrying amount of the asset to which it relates, an entity shall
recognise a liability if, and only if, that is required by another Standard.
After the recognition of an impairment loss, the depreciation (amortisation) charge for the
asset shall be adjusted in future periods to allocate the asset’s revised carrying amount,
less its residual value (if any), on a systematic basis over its remaining useful life.
Measuring recoverable amount of an intangible asset with an indefinite useful life

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The recoverable amount of an intangible asset with an indefinite useful life or an
intangible asset not yet available for use should be estimated annually irrespective of
whether there is any indication of impairment in order to test the affected intangible asset
for impairment.

Cash-generating units and Goodwill

If an asset is impaired the recoverable amount estimated for individual assets but if it is
not possible an entity shall determine the recoverable amount of the cash generating unit
to which the asset belongs (the asset’s cash- generating unit). If an active market exists
for the output produced by an asset or group of assets, that asset or group of assets shall
be identified as a cash-generating unit, even if some or all of the output is used internally.
If the cash inflows generated by any asset or cash-generating unit are affected by internal
transfer pricing, an entity shall use management’s best estimate of future price(s) that
could be achieved in arm’s length transactions in estimating:
 The future cash inflows used to determine the asset’s or cash-generating unit’s
value in use; and
 The future cash outflows used to determine the value in use of any other assets or
cash-generating units that are affected by the internal transfer pricing.

Corporate assets
In testing a cash-generating unit for impairment, an entity shall identify all the corporate
assets that relate to the cash-generating unit under review. If a portion of the carrying
amount of a corporate asset can and can not be allocated on reasonable and consistent
basis to that unit.

Goodwill
For the purpose of impairment testing, goodwill acquired in a business combination shall,
from the acquisition date, be allocated to each of the acquirer’s cash-generating units, or
groups of cash-generating units, that is expected to benefit from the synergies of the
combination, irrespective of whether other assets or liabilities of the acquiree are
assigned to those units or groups of units.

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Each unit or group of units to which the goodwill is so allocated shall represent the
lowest level within the entity at which the goodwill is monitored for internal management
purposes; and not be larger than an operating segment as defined by IFRS 8 Operating
Segments before aggregation.
If goodwill has been allocated to a cash-generating unit and the entity disposes of an
operation within that unit, the goodwill associated with the operation disposed of shall be
included in the carrying amount of the operation when determining the gain or loss on
disposal; and measured on the basis of the relative values of the operation disposed of
and the portion of the cash- generating unit retained, unless the entity can demonstrate
that some other method better reflects the goodwill associated with the operation
disposed of.
A cash-generating unit to which goodwill has been allocated shall be tested for
impairment annually and whenever there is an indication that the unit may be impaired.

Impairment loss for a cash-generating unit

An impairment loss shall be recognised for a cash-generating unit (the smallest group of
cash-generating units to which goodwill or a corporate asset has been allocated) if, and
only if, the recoverable amount of the unit (group of units) is less than the carrying
amount of the unit (group of units).
The impairment loss shall be allocated to reduce the carrying amount of the assets of the
unit (group of units) in the following order. First, to reduce the carrying amount of any
goodwill allocated to the cash-generating unit (group of units); and then, to the other
assets of the unit (group of units) pro rata on the basis of the carrying amount of each
asset in the unit (group of units).
In allocating an impairment loss an entity shall not reduce the carrying amount of an asset
below the highest of its fair value less costs of disposal (if measurable); its value in use
(if determinable); and zero.
The amount of the impairment loss that would otherwise have been allocated to the asset
shall be allocated pro rata to the other assets of the unit (group of units).
A liability shall be recognised for any remaining amount of an impairment loss for a
cash-generating unit if, and only if, that is required by another IFRS.

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Reversing an impairment loss
An entity shall assess at the end of each reporting period whether there is any indication
that an impairment loss recognised in prior periods for an asset other than goodwill may
no longer exist or may have decreased. If any such indication exists, the entity shall
estimate the recoverable amount of that asset as reversing an impairment loss for an
individual asset; for a cash-generating unit, and for goodwill.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

In general terms, assets (or disposal groups) held for sale are not depreciated, are
measured at the lower of carrying amount and fair value less costs to sell, and are
presented separately in the statement of financial position. Specific disclosures are also
required for discontinued operations and disposals of non-current assets.

Held-for-sale classification
In general, the following conditions must be met for an asset (or ‘disposal group’) to be
classified as held for sale: [IFRS 5.6-8]

Management is committed to a plan to sell the asset is available for immediate sale an
active programme to locate a buyer is initiated the sale is highly probable, within 12
months of classification as held for sale (subject to limited exceptions) the asset is being
actively marketed for sale at a sales price reasonable in relation to its fair value actions
required to complete the plan indicate that it is unlikely that plan will be significantly
changed or withdrawn.

The assets need to be disposed of through sale. Therefore, operations that are expected to
be wound down or abandoned would not meet the definition (but may be classified as
discontinued once abandoned). [IFRS 5.13]

An entity that is committed to a sale involving loss of control of a subsidiary that

qualifies for held-for-sale classification under IFRS 5 classifies all of the assets and

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liabilities of that subsidiary as held for sale, even if the entity will retain a non-controlling
interest in its former subsidiary after the sale. [IFRS 5.8A]

Held for distribution to owners classification

The classification, presentation and measurement requirements of IFRS 5 also apply to a
non-current asset (or disposal group) that is classified as held for distribution to owners.
[IFRS 5.5A and IFRIC 17] The entity must be committed to the distribution, the assets
must be available for immediate distribution and the distribution must be highly probable.

[IFRS 5.12A]

Disposal group concept

A ‘disposal group’ is a group of assets, possibly with some associated liabilities, which
an entity intends to dispose of in a single transaction. The measurement basis required for
non-current assets classified as held for sale is applied to the group as a whole, and any
resulting impairment loss reduces the carrying amount of the non-current assets in the
disposal group in the order of allocation required by IAS 36. [IFRS 5.4]

Measurement
The following principles apply:

At the time of classification as held for sale. Immediately before the initial classification
of the asset as held for sale, the carrying amount of the asset will be measured in
accordance with applicable IFRSs. Resulting adjustments are also recognised in
accordance with applicable IFRSs. [IFRS 5.18] After classification as held for sale.
Noncurrent assets or disposal groups that are classified as held for sale are measured at
the lower of carrying amount and fair value less costs to sell (fair value less costs to
distribute in the case of assets classified as held for distribution to owners). [IFRS 5.15-
15A]. Impairment must be considered both at the time of classification as held for sale
and subsequently:

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At the time of classification as held for sale. Immediately prior to classifying an asset or
disposal group as held for sale, impairment is measured and recognised in accordance
with the applicable IFRSs (generally IAS 16 Property, Plant and Equipment, IAS 36
Impairment of Assets, IAS 38 Intangible Assets, and IAS 39 Financial Instruments:
Recognition and Measurement/IFRS 9 Financial Instruments). Any impairment loss is
recognised in profit or loss unless the asset had been measured at revalued amount under
IAS 16 or IAS 38, in which case the impairment is treated as a revaluation decrease.
After classification as held for sale. Calculate any impairment loss based on the
difference between the adjusted carrying amounts of the asset/disposal group and fair
value less costs to sell. Any impairment loss that arises by using the measurement
principles in IFRS 5 must be recognised in profit or loss [IFRS 5.20], even for assets
previously carried at revalued amounts. This is supported by IFRS 5 BC.47 and BC.48,
which indicate the inconsistency with IAS 36.

Assets carried at fair value prior to initial classification. For such assets, the requirement
to deduct costs to sell from fair value may result in an immediate charge to profit or loss.
Subsequent increases in fair value. A gain for any subsequent increase in fair value less
costs to sell of an asset can be recognised in the profit or loss to the extent that it is not in
excess of the cumulative impairment loss that has been recognised in accordance with
IFRS 5 or previously in accordance with IAS 36. [IFRS 5.21-22] No depreciation.
Noncurrent assets or disposal groups that are classified as held for sale are not
depreciated. [IFRS 5.25]

The measurement provisions of IFRS 5 do not apply to deferred tax assets, assets arising
from employee benefits, financial assets within the scope of IFRS 9 Financial
Instruments, non-current assets measured at fair value in accordance with IAS 41
Agriculture, and contractual rights under insurance contracts. [IFRS 5.5]

Presentation

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Assets classified as held for sale, and the assets and liabilities included within a disposal
group classified as held for sale, must be presented separately on the face of the statement
of financial position. [IFRS 5.38]

Disclosures
IFRS 5 requires the following disclosures about assets (or disposal groups) that are held
for sale: [IFRS 5.41]

Description of the non-current asset or disposal group description of facts and

circumstances of the sale (disposal) and the expected timing impairment losses and
reversals, if any, and where in the statement of comprehensive income they are
recognised if applicable, the reportable segment in which the non-current asset (or
disposal group) is presented in accordance with IFRS 8 Operating Segments

Disclosures in other IFRSs do not apply to assets held for sale (or discontinued
operations, discussed below) unless those other IFRSs require specific disclosures in
respect of such assets, or in respect of certain measurement disclosures where assets and
liabilities are outside the scope of the measurement requirements of IFRS 5. [IFRS 5.5B]

Key provisions of IFRS 5 relating to discontinued operations

Classification as discontinuing
A discontinued operation is a component of an entity that either has been disposed of or
is classified as held for sale, and: [IFRS 5.32]

Represents either a separate major line of business or a geographical area of operations is

part of a single co-ordinated plan to dispose of a separate major line of business or
geographical area of operations, or is a subsidiary acquired exclusively with a view to
resale and the disposal involves loss of control.
IFRS 5 prohibits the retroactive classification as a discontinued operation, when the
discontinued criteria are met after the end of the reporting period. [IFRS 5.12]

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Disclosure in the statement of comprehensive income
The sum of the post-tax profit or loss of the discontinued operation and the post-tax gain
or loss recognised on the measurement to fair value less cost to sell or fair value
adjustments on the disposal of the assets (or disposal group) is presented as a single
amount on the face of the statement of comprehensive income. If the entity presents
profit or loss in a separate statement, a section identified as relating to discontinued
operations is presented in that separate statement. [IFRS 5.33-33A].

Detailed disclosure of revenue, expenses, pre-tax profit or loss and related income taxes
is required either in the notes or in the statement of comprehensive income in a section
distinct from continuing operations. [IFRS 5.33] Such detailed disclosures must cover
both the current and all prior periods presented in the financial statements. [IFRS 5.34]

Cash flow information

The net cash flows attributable to the operating, investing, and financing activities of a
discontinued operation is separately presented on the face of the cash flow statement or
disclosed in the notes. [IFRS 5.33]

Disclosures
The following additional disclosures are required:
Adjustments made in the current period to amounts disclosed as a discontinued operation
in prior periods must be separately disclosed [IFRS 5.35] if an entity ceases to classify a
component as held for sale, the results of that component previously presented in
discontinued operations must be reclassified and included in income from continuing
operations for all periods presented [IFRS 5.36]

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